TRIBHUWAN UNIVERSITY

Institute of Engineering
Pulchowk Campus

AN ASSIGNMENT ON COMPENSATION
EVENTS

SUBMITTED BY SUBMITTED TO
Bishow KC Prof. Khem Dallakoti

(072/MST/254) (Department of Construction Management)

SUBMISSION DATE: 21 March 2017

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Compensation Events

Compensation Events are events which may lead to the payment to Contractor
being changed or Completion date being changed.

Compensation Events are the events, which if they occur and do not arise from the
contractors fault, entitle the Contractor to be compensated for any effect the event
may have on the prices.

A Compensation Event will normally result in additional payment to the Contractor

but in a few cases may result in reduced payment.

The Contract limits Compensation events to those, and only those, identified in
Contract. If an event is not identified in the Contract as being a Compensation
Event, then no claim should be submitted whether or not there has been delay.

The Contract prevents the parties circumventing the Contract by making a claim
for the damages at common law.

In General, Compensation Events are documented in Standard Contract

Documents. There are also provision for the parties to add additional
Compensation Events, but great care must be taken here as how such events are
defined.

Very broadly, Compensation Events tend to be those events that impacts on the
Completion date, but are not the Contractors fault. This might include events that
are caused by the client, or natural events such as exceptionally adverse weather.

Compensation Events are not the allocation of blame, but an allocation of risk to
the parties. Any risk that is not specifically identified as being attributed to client is
borne by the contractor.

Specific Identified Compensation Events include:

Instruction to change the work information by client (Unless this results

from accepting a defect, or from a change requested by the Contractor )
Failure to provide the access to the sites on dates shown in accepted program

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 Employer or others (i.e. Third parties) do not carry out works in accordance
with the accepted program
Client side do not reply the Contractor within the time limits set down by the
contract
A instruction to halt or delay the works
Conditions that could not reasonably have been foreseen
An events occurs which is an employers risk stated in contract
Exceptionally adverse weather (Beyond 1 in 10 year frequency)
Force majeure (such as an epidemic or an act of God)
A breach of Contract by the employer which is not one of the other
compensation events

If an event occurs that the contractor considers to be a Compensation event;

they must notify the Project manager within specified time of becoming aware
of the event. This is a condition precedent to making a claim, and compensation
events cannot be considered if that deadline is missed.

The procedure to be followed to address Compensation Event

If NEC3 is being adopted , then to address compensation event, there is a

procedure. Thus, following steps need to be followed :

Notification;

Quotation;

Assessment;

Implementation.

Notification

For a compensation event that arises from an instruction of the Project

Manager or the Supervisor, for instance to change the Works Information or
to search for a Defect, the Project Manager notifies the Contractor of the

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 compensation event and instructs him to provide a quotation as per Core
clause 61.1
the compensation events include
(1) The Project Managers instructions to change the Works Information
(2) The Project Manager gives an instruction to stop or not to start work
or to change a Key Date
(3) The Project Manager or the Supervisor changes a decision that he had
previously communicated to the Contractor

On receipt of a notification from the Project Manager and an instruction to provide

a quotation, the Contractor provides that quotation within 3 weeks. This period can
be extended by agreement with the Project Manager, such extension only being
effective on receipt of a notification from the Project Manager of an agreement to
extend.

For all other compensation events, the Contractor notifies the Project Manager.

Thus, under (Core Clause 61.3), The Contractor may notify the Project Manager
of a compensation event where the Contractor believes that the event is a
compensation event or the Project Manager has not notified the event to the
Contractor.

The Contractor must within 8 weeks of becoming aware of the event give that
notification. There is however no time limit where the Project Manager should
have given the notification.

If the Contractor fails to comply with the 8 weeks time limit, then he is not
entitled to a change in the Prices, the Completion Date or a Key Date unless the
Project Manager should have notified the event to the Contractor but did not.

Once notified by the Contractor of a compensation event, the Project Manager has
to consider whether the event (Core Clause 61.4)

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 arises from a fault of the Contractor (this would probably include the
Contractors failure to give early warning)
has not happened and is not expected to happen
has no effect upon Defined Cost, Completion or meeting a Key Date; or
is not one of the compensation events stated in the Contract

If the above tests are passed, the Project Manager would instruct the Contractor
to submit quotations. But if the Project Manager decides otherway, the Contractor
may refer the matter to adjudication.

In any case, if the effect of the event is unclear, the Project Manager states
assumptions on which the Contractor is to base his quotation. If those assumptions
turn out to be incorrect, it is another compensation event.

The Project Manager has one week (of the Contractors notification) to notify the
Contractor of his decision. Failing which, the Contractor may notify the Project
Manager of this. Failure to respond within a further two weeks, it is treated that
the Project Manager has accepted that the event is a compensation event and
instruction to submit quotations.

Four situations where the Project Manager may instruct the Contractor to
submit quotations:

1) The Project Manager instructs the Contractor to submit quotations for a

compensation event at the same time as he notifies the compensation event,
2) The Project Manager instructs the Contractor to submit quotations for
compensation event when he has decided that the event notified by the
Contractor is a compensation event,
3) The Project Manager instructs the Contractor to submit a revised quotation for a
compensation event,
4) The Project Manager instructs the Contractor to submit quotations for a
proposed instruction or changed decision.

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 Quotation

Under NEC3, a quotation has a special meaning. It must deal with all the effects of
a compensation event on both time and money.

The quote must be assessed using the procedures in the contract and, when
providing his quote to the Project Manager, the Contractor must include details of
his assessment and, if the compensation event affects the Completion Date or the
Key Dates, a revised programme for acceptance.

On receipt of a quotation, the Project Manager must respond within 2 weeks (or an
agreed and notified extended period). His reply must be one of the following four
permitted responses:

An acceptance of the quotation;

A confirmation that a proposed compensation event will not be instructed;

A notification that the quotation has not been prepared properly (with
reasons) and an instruction to resubmit;

With a notification that the Project Manager will instead assess the
compensation event.

Implementation

When a compensation event is implemented it means it is finalized and cannot be

changed by the parties, only by an adjudicator.

A compensation event becomes implemented when:

The Project Manager accepts the Contractors quotation;

The Project Manager notifies the Contractor of his assessment;

The Contractors quotation is treated as having been accepted by the Project

Manager.

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